Sweden

Sweden-Dominica TIEA enters into force

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On 1 August 2017, The Tax Information Exchange Agreement (TIEA) between Sweden and Dominica will enter into force. The agreement generally applies from 1 August 2017 for criminal tax issues and from 1 January 2018 for all other tax issues.

Sweden: Proposal for major corporation tax reforms

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The Swedish Government on 20 June 2017 issued a statement proposing important changes in the area of corporate taxation. The main proposals are summarised below:

  • According to the announcement the deductibility of the net interest expense would be limited to 35% of taxable EBIT, while a limitation to 25% of taxable EBITDA is presented as an alternative.
  • The corporate income tax rate for legal entities would be reduced from 22% to 20%.
  • New rules are proposed to prevent deductions relating to hybrid mismatches. The rules should implement parts of BEPS Action 2 and ATAD (Anti Tax Avoidance Directive). Additional proposals are to be expected later to fully implement the restrictions from Action 2 and ATAD.
  • According to the announcement, each company in a group may decide to apply a safe harbour rule which allows a deduction of the net interest expense of SEK 100,000 (approximately € 10,000). The limit applies to group level so that the total amount that can be deducted within a group under the Safe Harbor rule is limited to SEK 100,000.
  • The introduction of tax rules for finance leases and the new leasing obligation would be applicable to assets such as inventory, machinery and equipment, buildings, fixed installations/ground installations and land.
  • Temporary limitation on the utilisation of tax losses carry forward. It is proposed that there will be a temporary restriction during two (EBIT-rule) or three years (EBITDA-rule) in respect of the utilisation of tax losses carry forward. Only 50% of the taxable profit will be possible to set off against losses. Any unused losses may be carried forward indefinitely.
  • Standardised income from emergency residences for non-life insurers

It is proposed that most new provisions should enter into force on 1 July 2018.

Sweden: Government proposes amendments to the taxation of real estate

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The Swedish government has Proposes some tax changes on 30 March 2017, regarding taxation of real estate. The proposal will now be referred to stakeholders for consultation before a final version is handed to Parliament for voting. The new rules are proposed to enter into force on 1 July 2018.

The key features of the process are:

-The sale of a company whish’s assets mainly consist of real estate will, simplified, be taxed as if the real estate was sold separately. The company sold will be liable to pay the tax.

– The stamp duty should no longer be levied on intra-group property transactions and the stamp duty for companies is dropped from 4.5% to 2%.

-Intra-group real estate transactions of land and buildings that can be carried out below market value are to support continuity in terms of acquisition values, accumulated depreciation and the tax residual value.

– A tax impartial transfer of real estate below the fair market value will have no effect on the acquisition value, tax base, and tax reductions made.

South Africa: SARS issues ruling on MFN clause in a treaty with Sweden

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On 1 March 2017, the South African Revenue (SARS) issued a private binding ruling no. BPR 267 regarding dividends tax and the ‘most favoured nation’ clause in a tax treaty concluded with Sweden. The ruling determines whether dividends tax must be withheld when a dividend is paid to the beneficial owner that is a resident of the Kingdom of Sweden. Sweden and South Africa concluded the SA/Sweden tax treaty which, when read with the Protocol, includes a ‘most favoured nation’ clause.

The ruling is mainly issued on the basis of an application from a company incorporated in and a resident of South Africa that is a wholly-owned subsidiary of a company incorporated in and a resident of Sweden. According to ruling, applicant will not be required to withhold dividends tax from the dividend payments to parent company if parent company complies with the documentary requirements in section 64G(3). The ruling describes that the MFN treatment under the treaty with Sweden was triggered by the South Africa – Kuwait Income Tax Treaty (2004).

This binding private ruling is valid for a period of three years from 7 December 2016.

Sweden publishes regulation on automatic exchange of CbC reporting

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The regulation on the automatic exchange of country-by-country (CbC) reporting (the Regulation) was published in the Official Gazette on 14 March 2017. The law proposal had been adopted on 1st March 2017. The Regulation, which will enter into force on 1 April 2017 and also available here.

Sweden approves the new legislation on transfer pricing documentation and CbC reporting

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Sweden’s parliament on 1 March 2017, adopted the government’s proposal on transfer pricing documentation and country-by-country reporting. The adoption amounts to the ratification of OECD’s guidelines for transfer pricing documentation and country-by-country reporting in Swedish tax legislation.

Transfer pricing documentation

The new measures, effective 1 April 2017, adopt transfer pricing documentation rules that reflect the standards in the OECD’s base erosion and profit shifting (BEPS) Action 13 final report. The legislation complies with OECD’s recommendations so that the transfer pricing documentation will consist of a Master file and Local files.

Documentation requirements

The new documentation requirements are effective for financial years beginning 1 April 2017 or later. The Master file must be prepared by the time when the tax return of the parent company is due, and the Local file must be prepared by the time the tax return of the local entity is due.

Companies will be exempt from the requirement to file transfer pricing documentation if the year prior to the subject financial year, the company had less than 250 employees and either have reported revenues not exceeding SEK 450 million or total assets not exceeding SEK 400 million.

In addition, the legislation expands the scope of those taxpayers required to prepare transfer pricing documentation to include: (i) Foreign companies with permanent establishments in Sweden; and (ii) Swedish companies with permanent establishments abroad.

Swedish unlimited partnerships (pass-through entitles) if there are transactions with a foreign company and the unlimited partnership’s profits, are taxed in a Swedish company that is in a group with both the unlimited partnership and the foreign company

Swedish companies, unlimited partnerships or permanent establishments that are not required to prepare transfer pricing documentation are nonetheless required to price all internal transactions at arm’s length.

Country-by-country reporting

Similarly, there are new rules introduced for country-by-country (CbC) reporting and for the automatic exchange of those CbC reports with tax authorities both in the EU and in countries and jurisdictions which have signed the multilateral agreement on automatic exchange of information for CbC reports—the Multilateral Competent Authority Agreement (MCAA). The CbC report will be due by 31 December 2017 at the latest (pertaining to financial years commencing 1 January 2016 or later).

Under the new rules, multinational groups for the year prior to the financial year with revenues exceeding SEK 7 billion will be required to submit certain data every year for each jurisdiction in which they are active. Normally, it will be the parent company of the multinational group that will submit the CbC report to the tax authority of the country where it is active.

A CbC report must include the following information on indicators of economic activity for each country in which the taxpayer’s group operates in:

-Revenue.

-Profit or loss before income tax.

-Paid and accumulated income tax.

-Share capital.

-Accumulated profits.

-Number of employees.

-Tangible assets except cash.

Where the parent is resident abroad and that country does not require a CbC report, a Swedish subsidiary may be required to submit the report on behalf of the parent. Penalties will apply for failure to submit a CbC report to the tax agency.

With respect to master and local file requirements, an exception will apply to small and medium-sized enterprises, which are companies that have less than 250 employees and whose annual turnover does not exceed SEK450 million or assets do not exceed SEK400 million.

Sweden: No new bank tax before 2018

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The government announced on 24 February 2017 its decision to withdraw plans to introduce a special tax on banks and other financial institutions. The bank tax was originally intended to eliminate the tax advantage the banking sector receives due to the fact that financial services are exempt from VAT.